EFFECT OF CORPORATE GOVERNANCE ON FINANCIAL PERFORMANCE OF NEPALESE COMMERCIAL BANKS

Abstract

This study investigates the effect of corporate governance on the financial performance of Nepalese commercial banks, focusing on five key variables: Board Size (BS), Firm Size (FS), Foreign Ownership (FO), Leverage Ratio (LR) and Loan to Deposit Ratio (LDR) with Return on Equity (ROE) as the dependent variable. Employing both descriptive and causal research designs, the study analyzes the status of corporate governance and evaluates its impact on financial performance. The research utilizes panel data from 2013/14 to 2022/23, sourced from the annual reports of selected banks, including NABIL Bank Limited, Nepal Bank Limited, Himalayan Bank Limited, and Nepal SBI Bank Limited. Descriptive statistics reveal variability in governance metrics and financial performance, highlighting differences in Board Size, Firm Size, and Foreign Ownership across banks. Correlation analysis identifies significant relationships between these governance variables and ROE, showing that larger boards and higher foreign ownership are positively associated with ROE, while larger firm size and higher Loan to Deposit Ratio are negatively related. Regression analysis further quantifies these relationships, revealing that Board Size and Foreign Ownership have significant positive impacts on ROE, whereas Firm Size and Loan to Deposit Ratio negatively affect ROE. The Leverage Ratio does not show a significant impact. These findings underscore the importance of effective corporate governance in enhancing financial performance in Nepal's banking sector.